Our profit zone is now closer, owing the recent spot move.


I - The situation :

EUR / USD seems to believe that USD would be in a much more steady way




II - The strategy :

I had choosen in a arbitrary way a bearish direction on the EUR / USD, that the dollar should strengthen against the EUR.
The butterfly spread is built as it follows:

DEC 28 Expiry:
- The purchase of 300000 calls struck at 1.34 for $0.0230 each ( Implied Volatility 16.59% ) hence a debit of $ 6900
- The short selling of 600000 calls struck at 1.32 for 0.0169 each ( Implied Volatility 16.72% ) hence a credit of $ 10140
- The purchase of 300000 calls struck at 1.30 for $ 0.0138 ( Implied Volatility 17.86% ) hence a debit of $ 4140

Global debit : $ 900



III - Pricing :




300000 1.34 puts are worth 0.0228 each ( Implied Volatility de 15.42% ) hence $ 6840 ( $ - 60 )
600000 1.32 puts are worth 0.0173 each ( Implied Volatility 16.78% ) thus $ 10380 ( $ - 240 )
300000 1.30 puts are worth 0.0120 each ( Implied Volatility 17.29% ) hence $ 3600 ( $ - 540 )

Global P&L : - 60 - 240 - 540 = $ - 840



IV - Graph :




Possible adjustment :
In order to increase the range of our profit zone, it's possible to make the following adjustment :

Selling 300000 dec 1.34 calls for $ 6840
Buying 200000 dec 1.36 calls at 0.0317 for $ 6340.

It decrease the initial investment from $900 to $400
It increased the profit range from 1.29 to 1.40.




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Gilles